The US sanctions against Russia over the Ukraine crisis have sparked a debate on the future of the global financial system. Some experts believe that the sanctions will weaken the role of the US dollar and pave the way for the adoption of the digital ruble, a central bank digital currency (CBDC) that Russia is developing.
What is the digital ruble?
The digital ruble is a digital version of the Russian national currency that will be issued and controlled by the Bank of Russia. It will be based on blockchain technology and will have the same legal status as cash and bank deposits. The digital ruble will be accessible to individuals and businesses through electronic wallets and mobile applications.
The Bank of Russia announced its plans to create a digital ruble in October 2020, and launched a public consultation on the project in January 2023. The bank aims to start testing the digital ruble with selected participants in 2024, and to launch it for mass use by 2026.
Why does Russia need a digital ruble?
According to the Bank of Russia, the main goals of the digital ruble are to:
- Enhance the efficiency, security, and convenience of payments for consumers and businesses
- Increase financial inclusion and accessibility for remote and rural areas
- Support the development of the digital economy and innovation
- Reduce the dependence on cash and foreign currencies
- Strengthen the sovereignty and stability of the national monetary system
However, some analysts argue that another motivation behind the digital ruble is to evade the US sanctions that have isolated Russia from the global banking system. The sanctions have limited Russia’s access to the SWIFT network, the main system used for international transactions, and have forced Russia to look for alternative ways to de-dollarize its economy.
How could the digital ruble help Russia evade sanctions?
The digital ruble could help Russia evade sanctions by enabling it to bypass the intermediaries and channels that are controlled by the US and its allies. The digital ruble could facilitate direct and fast payments between Russia and its trading partners, without relying on the US dollar or the SWIFT network.
For example, the digital ruble could be used to pay for oil and gas exports to China, Turkey, and other countries that are willing to accept it. The digital ruble could also be used to trade with the members of the Commonwealth of Independent States (CIS), a group of former Soviet nations that are largely aligned with Moscow. Some of these countries, such as Belarus and Kazakhstan, are also developing their own CBDCs, which could be integrated with the digital ruble.
The digital ruble could also give the Russian authorities more control over the financial flows and transactions of its citizens and businesses. The digital ruble could enable the government to monitor, track, and freeze the assets of anyone who is suspected of violating the sanctions or the national laws. The digital ruble could also be used as a tool to impose fines or taxes on the users, without requiring their consent or cooperation.
What are the challenges and risks of the digital ruble?
The digital ruble is not without challenges and risks, both for Russia and for the rest of the world. Some of the potential issues include:
- The lack of trust and acceptance from the public and the private sector, who may prefer to use cash or other digital currencies that offer more privacy and anonymity
- The technical and operational difficulties of creating and maintaining a secure and scalable digital currency system that can handle millions of transactions per day
- The legal and regulatory uncertainties and conflicts that may arise from the coexistence of the digital ruble with the existing payment systems and instruments
- The geopolitical and economic implications of the digital ruble for the global financial order, especially for the US and its allies, who may see it as a threat to their dominance and influence
What is the future of the digital ruble and the US dollar?
The digital ruble is still in its early stages of development and testing, and it is too soon to predict its impact and success. However, it is clear that the digital ruble is part of a larger trend of digital transformation and diversification of the global financial system, driven by technological innovation and geopolitical competition.
The US dollar, which has been the dominant reserve and trade currency for decades, is facing increasing challenges and pressures from other currencies, both digital and traditional. The US sanctions, which have been intended to isolate and punish its adversaries, may have also undermined the confidence and trust in the US dollar and its institutions.
The future of the digital ruble and the US dollar will depend on many factors, such as the political and economic developments in Russia and the US, the demand and supply of the digital and the fiat currencies, the cooperation and competition among the different countries and regions, and the preferences and behaviors of the consumers and businesses.
The digital ruble and the US dollar may coexist and complement each other, or they may clash and compete with each other, or they may evolve and adapt to each other. Only time will tell.